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For Federal tax, to avoid penalty on underwithholding, you must have withheld (employer + estimate withholdings) during the year

- At least 90% of the total tax due (line 63 of the 2006 1040) or
- At least 100% of the previous year's tax (110% if you are married filing jointly and your AGI is greater than $150,000), or
- The balance due (line 76) is less than $1,000

Meeting any of these means you will not have to pay an underwithholding penalty for the year in which you had the added income from the Roth Conversion (or large realized capital gains, or any other forms of large unexpected income that did not have anything withheld and send to the IRS).

Even if you don't meet one of the above, you may be able to minimize the penalty by showing on a form 2210 that your unexpected income occured late in the year. But be advised, filling out a 2210 can be hazardous to your almost must do it in TurboTax or one of the other tax prep programs.


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